America’s forest products industry has been an essential part of
our nation’s history. We make vital products that people want and need, and as
an industry, we’re doing that with less and less environmental impact. Since
1970, our industry has invested more than $25 billion to improve environmental
performance. The return on that investment has been profound. The forest
products industry is a leader in producing its own energy, and is constantly
finding new ways to make processes cleaner and more energy-efficient — while
using fewer natural resources. Air and water emissions are dramatically reduced,
and our forests are well-managed through the Sustainable Forestry Initiative
program. Our environmental performance has reached the level of excellence —
American companies are as good as or better than any other forest products
manufacturing nation.

Our products are world-class,
cost-effective, and made from uniquely renewable materials that we do a good job
of managing. These facts are something to be proud of, but in themselves are not
enough to secure our industry’s future as an integral segment of America’s
future. For the second time in five years, AF&PA has completed a comprehensive
examination of the competitive factors facing our industry — key issues that
must be addressed to ensure our long-term competitive health. According to our
research, the largest competitive issues are sustainable fiber supply, high
taxes, international trade, market access, and the high cost of complying with
environmental regulation. While we’ve made some progress in recent years, we
must do more. Wood fiber costs have gotten better, but our costs remain higher
than newer competing regions despite America’s vast forest resources.

Recovered fiber consumption has grown worldwide and the
burgeoning demand is creating pressure on domestic supply. Despite a paper
recovery rate above 50-percent, there are increasing concerns about the quality
of the available supply. When AF&PA completed its first round of strategic
research in 2000, we feared that environmental compliance costs could grow to
exceed 25-percent of capital spending within five years. A series of major
policy victories, including Cluster Rule, MACT rules, TMDL provisions, and New
Source Review, prevented that from happening. Capital expenditures for
environmental compliance peaked in 2000 and have declined slightly as a
percentage of the industry’s total capital spending. U.S. capital costs are now
comparable to other developed countries, although U.S. permitting costs are
higher. However, there’s a significant gap in compliance costs between developed
and developing nations.

The lower cost of environmental compliance gives a major
advantage to manufacturers in developing nations. That first round of research
also showed that U.S. producers were paying the second highest effective tax
rate among competitor nations. While we’ve been able to reduce the tax burden,
other competitor nations such as Brazil and Germany have also reduced taxes. New
competitors with lower tax rates also emerged — especially Russia and China.
Further reducing taxes is a top legislative priority for AF&PA. The biggest
change affecting forest products in the past five years has been the growth of
international trade. Production growth in several regions exceeds demand in
those regions, which creates excess capacity for many grades of wood and paper.
Many of those producers are turning to U.S. markets to sell that extra
production. In 2004, the U.S. ran a $22 billion trade deficit in forest products
— a 70 percent increase in just five years.

Much of that trade deficit is fueled by new competitors in lower
cost regions, such as South America, Asia, and Eastern Europe. A significant
portion of that new competition — especially from Asia — has been generated by
government- subsidized capacity expansion. The Chinese government, for example,
has subsidized state of the art capacity in a number of product grades,
including: uncoated free sheet, linerboard, hardwood plywood, and medium density
fiberboard. China has also used other unfair trade practices such as
manipulating the value of their currency vs. the dollar. AF&PA’s international
focus has moved beyond tariff elimination to include fair trade practices such
as subsidies and currency manipulation. We have raised these issues with the
World Trade Organization and other international bodies, emphasizing at every
opportunity the need for a level playing field.

Also essential to the industry’s future is preserving market
access by preventing discrimination against our products based on non-economic
factors. AF&PA has helped defeat numerous state-level initiatives, and recently
supported passage of green building laws in Arkansas and Maryland that put our
products on equal footing with every other product. And we’ve helped confront
discriminatory building codes and procurement policies around the world.
Progress on these key issues is essential for our industry. At the same time, we
must maintain our sterling environmental performance while continuing the quest
for constant improvement. And we must encourage producers around the world to
match our standards. Environmental stewardship must remain fundamental to our
industry, now and in the future.